In spite of constant skepticism, Bitcoin has grown to witness a wider adoption and attention than any other digital currency proposed to date. Currently, Bitcoin holds the largest market share among all existing digital currencies, with a market cap of a few billion USD. Bitcoin's exchange rate also recently sharply rose over most fiat currencies with significant additional rise expected in the coming few years. Bitcoin implements a novel distributed consensus scheme based on Proof of Work (PoW) that scales to a large number of nodes. Here, participants “vote” with their computing power which effectively limits the power of individual users and makes Sybil attacks difficult. The sustainability of the Bitcoin system has been aided by large investments made by several mainstream companies in large data centers that are equipped with dedicated PoW mining capabilities. In spite of its huge energy consumption and low performance, PoW currently accounts for more than 90% of the total market capitalization of existing digital cryptocurrencies and is being used in Bitcoin, Litecoin, Dogecoin and Ethereum. This is probably due in part to the considerable investments that have been carried out in hash-based mining dedicated machinery. Based on recent events, it is clear that drastic changes to the rules governing the dynamics of the PoW ecosystem will be widely resisted by the backing industry.
The process of mining for a given set of transactions T and given the hash Bl of the previous block at a certain point in time t requires to determine a nonce value nonce such that H(Bl; T; t; nonce) fulfils a certain condition, typically, being smaller than a given difficulty threshold. H(Bl; T; t; nonce)<difficulty. Here, H is a hash function defined in the blockchain protocol.
The current difficulty level of PoW mining is so prohibitively high that it reduces the incentives for miners to operate solo. In view of this, miners often work together in mining pools. In the context of mining pools, however, the members are not actually miners, but so-called workers because, unlike a miner, they do not store any part of the blockchain. Rather, only the operator of the mining pool stores the full blockchain. Joining a mining pool is an attractive option to receive a portion of a block reward on a consistent basis. Rewards are then shared between the members (i.e., workers) of the mining pools based on the computational resources that they commit. There are currently a number of models for profit sharing in mining pools, such as Pay-per-Share (PPS), Pay-per-last-N-Shares (PPLNS), among others. In all these models, workers do not connect to the blockchain; instead, they are typically required to solve a PoW with a reduced difficulty that is determined by the pool operator.
Although profitable, mining pools are a clear departure from the original model outlined in Nakamoto's whitepaper. In mining pools, workers are incentivized to obtain a block reward and do not have any incentives to store the blockchain, nor to operate a full Bitcoin node. In fact, most existing workers run specific mining protocols, such as Stratum mining (STM) or GetBlockTemplate (GBT), in which they solve specific outsourced PoW puzzles without having to store any parts of the blockchain. Because blockchain security relies on the availability of all events (and their order of execution), the inventors have recognized that the lack of incentives to store the blockchain data poses a serious threat to the security and sustainability of the PoW-based blockchains.
As discussed by Miller, A., et al., in “Permacoin: Repurposing Bitcoin work for data preservation,” Security and Privacy (SP), 2014 IEEE Symposium on, 475-490, there has been a sharp decrease in the number of full nodes that store the full blockchain and a considerable surge in the number of workers and lightweight blockchain clients, which only store a small subset of transactions. Also discussed are proposals for re-purposing of the PoW to, e.g., prove storage of archival data. Such re-purposing, although beneficial, would obviate the use of hash-optimized application-specific integrated circuit (ASICs) and field-programmable gate array (FPGAs) equipment (that have limited RAM and storage capabilities) and would require investments in storage-capable machinery (e.g., storage and exponentiation-optimized machinery).